Sometimes when a small company conducts business with a larger company, the respective bargaining power of each party is not equal. The larger company almost always has the small company over a barrel. That’s never the case when Finkel Law Group represents your company in litigation with a larger, well-funded adversary. Our firm recently helped a small public relations firm in Northern California secure settlement in a contract dispute from a large publicly-traded software company in Vancouver, Canada that had acquired a small, privately held software development company in Southern California for whom our client provided public relations services.
In January 2003, our client agreed to provide public relations services to a start-up software company in Newport Beach. Under the agreement the software company agreed to pay our client $1,000 per month plus all costs, and further agreed to pay interest on all unpaid balances outstanding more than 30 days at a rate of 1.5 percent per month compounded monthly. After several years, the software company agreed to an increase in the monthly fees to $1,500 per month because it was happy with the service. The parties amended the fee provision of the contract, but all of the other terms and conditions remained the same, including the software company’s obligation to pay all costs and interest on all unpaid balances compounded monthly.
The software company remitted payment to our client in accordance with the revised terms of the contract throughout 2006, 2007, 2008, 2009, and part of 2010. From April 2010 to November 2012, however, the company failed to pay our client for any of the services it provided. Despite the software company’s failure to pay the outstanding invoices, our client continued to provide the company with the public relations services it requested on the basis of personal assurances from the CEO that all fees would be paid in full once their software company was acquired. No one from the software company ever disputed any invoices submitted by our client and repeatedly assured it that the invoices would be paid in full. Over a period of two and one-half years, the software company failed to pay our client more than $88,000 in fees, costs and interest owed for services provided under the contract.
The software company was acquired in November 2012, by the Canadian software company for more than $15,000,000. The acquisition was structured as an asset acquisition that called for a $6,000,000 payment at signing, and $9,000,000 earned out over three years. The acquirer wanted to make sure the newly-acquired software assets actually generated the revenues represented by the seller in their negotiations. The earn-out provision provided important leverage in our later negotiations over payment of our client’s past due invoices. When the deal closed, our client inquired about payment of its invoices.
The public relations firm retained Finkel Law Group in June 2014 to help it resolve the dispute. During the intervening two years, insiders had bled the private software company of all of its valuable assets and left a corporate shell with only liabilities to service. A sure sign of fraud upon the creditors. After surveying the landscape, we immediately sent to the private software company’s attorneys a demand letter with a detailed spreadsheet showing all of the payments and interest their client owed after more than two years of delinquency, a sum in excess of $88,000. Counsel consulted with his client and returned with an offer of $22,000, which our client rejected.
We next submitted the same demand letter and spreadsheet to counsel for the Canadian software company that had acquired the small developer two years earlier. After a detailed discussion of the amount owed, and consultation with its own client, the attorney returned with a settlement offer of $25,000, which our client summarily rejected. We then prepared a complaint that named the private software company, the publicly traded software company, and certain insiders who conceived of and participated in the fraud as defendants. The complaint alleged fraud, breach of contract, various common law claims for monies owed, and unfair business practices.
We provided a copy of the complaint to counsel for both companies, and informed them that if their clients refused to pay the monies owed to our client we would immediately file the complaint in Contra Costa County Superior Court. Furthermore, we described our plan to name as additional defendants any and all professionals who assisted the two software companies in structuring the transaction in such a way as to defraud the creditors of the small privately held company based in Newport Beach. One of those creditors was, of course, our client. Within mere minutes of transmitting the demand letter and copy of the complaint, the defendants agreed to pay $83,000 of the $88,000 owing on the invoices. Our client accepted the settlement and within a week had the money in its bank account several weeks before Thanksgiving. A result that made for a very happy holiday season.